I had a conversation with a colleague today who deals in mortgages. He said his phone is already ringing with customer calls about refinancing their mortgage. Many wind up disappointed when he tells them that mortgage rates haven’t dropped back to pre-pandemic levels.
Why haven’t they?
That’s a complicated question that demands a pretty straight answer.
The reason mortgage rates haven’t fallen since the big Fed rate cut is that they kind of already did. The national average30-year fixed mortgage rate in November of 2023 was over 8%. Investors were anticipating this rate cut and have started “pricing it in”. As we got closer and closer to the rate cut that the Federal Reserve indicated, the market adjusted beforehand. By September 3rd, that rate was at 6.4% (Daily, 2024). In short, mortgages didn’t go down AFTER the big Fed meeting because they went down BEFORE the big Fed meeting.
The other reason is that the rate cut by the Federal Reserve was just a relatively small step down, not a huge jump. They lowered their rate by half a percent. The Federal overnight rate is still around 5%. In 2019, that rate was virtually 0%. We are a LONG way from the Federal Reserve rate reaching 0%, and we may not see that rate for the foreseeable future.
Mortgage rates may not reach the levels they were at 5 years ago for a very long time. They may drop some more from here, but don’t expect a race to the bottom.
As always, you can find this and many other articles about basic financial planning on our website, www.paducahfinancialconsultants.com. Just click on the “blog” section and the entire library is at your fingertips.